April 21, 2014 - The Rebound

Markets closed out the holiday-shortened week on an upbeat note, with the S&P 500 posting its best week since July. For the week, the S&P 500 gained 2.71%, the Dow grew 2.38%, and the Nasdaq rose 2.39%.[1]

Markets shook off the previous week's losses and rallied on earnings data and a better-than-expected Gross Domestic Product (GDP) report from China. Though earnings season is still young, the overall picture is not as bad as investors had feared. Thomson Reuters estimates that first-quarter earnings increased 1.7% from a year ago, which is much lower than the high-flying estimates at the beginning of the year, but not too bad considering the rough winter.[2]
Though China's first-quarter GDP report is not rosy - it showed that economic growth slowed to 7.4% as compared to the previous year - analysts had expected it to drop even further to around 7.0%.[3] The data shows that China's economic growth is indeed slowing, but markets still counted it as a win (for now). China is a trading partner to many countries around the world, and its economic strength is a bellwether for the health of the global economy. A slowdown in China could have knock-on effects elsewhere in the world.

On the domestic front, economic data is looking up. Retail sales surged in March, recording their largest gains in 1½ years as consumer demand came roaring back. Increasing consumer demand could indicate that economic growth is set to accelerate in the spring.[4]

The number of new unemployment claims filed last week rose less than expected, staying close to the 6½ year low achieved the previous week. The four week moving average, a less volatile measure, fell to the lowest level since October 2007, indicating that labor market growth is accelerating.[5]

Fed Chair Janet Yellen spoke last week and reiterated her opinion that the economy and labor market are still not fully recovered. She stated that future policy moves would not be based on a single indicator, but on a comprehensive analysis of the economy's health.[6]

Looking ahead, earnings season will kick into high gear this week when nearly one third of S&P 500 companies report.[7] If investors see strong earnings performance, markets could shake off the doldrums and resume the rally. On the other hand, weak performance could lead to significant volatility.

Economic Calendar

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Headlines:

U.S. housing starts lag in March. Builders broke ground on fewer houses in March than expected, and new building permits fell, suggesting that weakness in the housing market could persist through warming weather.[8]

Manufacturing output rises in March. Factory production rose for the second straight month, extending its rebound after the cold winter. Overall industrial production was up 0.8%, beating analysts' expectations, and indicating that manufacturing is set for a positive second quarter.[9]

Russia threatens shutoff if gas bill not paid. Russian President Vladimir Putin warned that natural gas supplies to Europe might be disrupted if Ukraine does not pay its gas debts, which Russia claims total $2.2 billion. Both Russia and the European Union (EU) are scrambling to find other markets for natural gas in the event the Ukrainian situation continues.[10]

Mortgage applications rose last week. Falling interest rates caused a surge in mortgage applications as Americans rushed to lock in lower rates. Rates on fixed 30 year mortgages fell to 4.27%, the lowest they've been since November 2013.[11]

These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

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